Institutional investors are abandoning crypto for artificial intelligence stocks, forcing digital asset markets to shift from momentum-driven trading to fundamentals-based valuation, according to Matt Hougan, chief investment officer at Bitwise.
“Investors still believe in crypto, but now that it’s a contrarian bet, they favor fundamentals over vibes,” Hougan said in a market note published Tuesday. The Nasdaq-100 has gained 43% year-over-year, while Nvidia shares have surged 1,500% since OpenAI launched ChatGPT to the public in late 2022.
Crypto markets reflected the capital flight. The total crypto market capitalization dropped 5.3% to $2.38 trillion, leaving the sector 46% below its October peak. “The crypto market is brutal right now,” Hougan said.
The rotation away from digital assets mirrors a broader shift in investor appetite. “One major reason is that crypto is no longer the belle of the ball. AI stocks, robotics companies, SpaceX … who needs crypto when the Nasdaq-100 is up 43% year-over-year?” Hougan said.
Hougan frames the transition as painful but potentially healthy. “With AI sucking all the oxygen out of the room, crypto is being forced to go through a painful metamorphosis: from momentum trade to contrarian bet,” he said. He argues that contrarian bets can deliver strong returns but typically have “spotty” payoff patterns, requiring patience and long-term orientation.
“Momentum investments are fun. They surf along waves of excitement. Contrarian bets, by comparison, are a grind, requiring patience, a long-term orientation, and a focus on fundamentals,” Hougan said.
The shift has altered which crypto assets attract capital. In past cycles, Bitcoin served as a safe haven during downturns. Currently, money is rotating into smaller assets with stronger fundamentals, Hougan noted. He views this reallocation as evidence the bear market is nearing its end.
Nick Ruck, director at LVRG Research, frames the same dynamics more optimistically. “Crypto is quietly emerging as the true contrarian bet for sophisticated investors seeking directional upside in a maturing market,” Ruck said.
Ruck attributes the shift to structural improvements in the sector. “This shift away from hype toward fundamentals is being fueled by real adoption metrics, regulatory clarity, and on-chain utility rather than speculative bets,” he said.
The divergence between Hougan’s cautionary tone and Ruck’s bullish framing reflects broader disagreement over whether crypto’s transition from speculation to fundamentals represents opportunity or hardship. Both analysts agree the shift is underway.
